Caution Is The Watchword !
I am elated to inform you that the current issue is a special one as it is our 34th anniversary edition. I must also confess that these 34 years of market observation and analysis has been a thrilling experience and has made us wise. The advantage of being in the market for so long is that the market becomes your friend and a true ally even in difficult times. We are proud to have been relentlessly serving you for all these years. I would like to assure you that with our unique proprietary stock selection methodology we will continue to strive to keep beating the markets for our investors.
Focusing on markets, once again the Indian markets have tumbled due to imported fears – the dreaded corona virus! Indeed, the virus has put the fragile global economic recovery at risk even as it spreads to different geographies, threatening to shut down economic activity in several major global cities. The global economy grew by 2.9 per cent last year and was expected to grow by 3.3 per cent in the current year before the outbreak of the deadly virus in China. Now, with the emergence of Covid-19 in China, the IMF fears that it will shave off at least 0.1 per cent of global growth.
The Indian markets, even though immune from global threats to a great extent, cannot shine in isolation for long. So, yes, there will be some pressure on stock prices and what was turning out to be a dream run for mid-caps and small-caps may witness a reality check for a while. This phase, which we technically call ‘market correction’, has time and again proven to be an opportunity for long-term portfolio investors to generate market beating returns. We had suggested in our last editorial that it would make sense to hold 15 per cent in cash while this virus issue settles down.
As the market structure is still looking good and the earnings’ cycle promises to revive in the coming quarters, investors can now adopt a ‘buy on dips’ strategy. This correction in the market could be a perfect opportunity to accumulate defensives such as FMCG stocks, IT stocks and select pharmaceutical stocks. There are ample opportunities and growth is available at reasonable price. One just has to be persistent in approach and focus in the right direction. This special anniversary issue brings to you a list of ‘DSIJ 150 Wealth Creators’ ranked on certain quantitative parameters.
I am sure the list will help you to make portfolio investment decisions. The cover story talks about the top wealth creators of 2019 and also provides market outlook for the remainder of the year. In one of the special stories we have attempted to share our thoughts on high PE stocks versus low PE stocks. Clearly something is changing in the way markets are pricing growth. As long-term investors, if we miss this important detail we may lose on lucrative investment options. The special story will help investors put appropriate filters while choosing stocks through a study of PE ratios.
To wrap it up, I would say the current market condition warrants caution. Stay optimistically cautious, avoid leverage and construct a durable portfolio with exposure to sectors expected to show reasonable growth. Always remember: stay optimistic when the majority are pessimistic!
RAJESH V PADODE
Managing Director & Editor